Tax Advice

Registering for Tax

In order to take advantage of the benefits offered by the low Cyprus tax rates it is necessary to register yourself as being a tax resident. Anyone who spends more than 183 days in a calendar year is automatically a tax resident here.

The first step is to register with the Immigration office. Visit the Immigration offices and make an appointment. At that time they will issue a list of documents that you will need to bring with you to the appointment. These will include

◾Passport

◾Bank Statements

◾Proof of residence ( title deeds, sales agreement, rental contract )

At the end of that appointment you will be issued with a yellow residency permit.

To register for tax you take this form to the Tax Office, and, if you have UK pensions, take form DT/Individual filled in with details of your UK pensions. This will then be sent by the Cyprus Tax Office to HM Revenues & Customs (HMRC), who will then instruct your pension provider to stop deducting tax from your pension.

Paying Tax in Cyprus

Income tax in Cyprus is due in three instalments, the first by 1st August (half the estimated tax), the second by 31st December (the balance of estimated tax) and a final mop up payment by 30th June the following year.

Defence Contribution (on overseas interest and dividends) is due in two instalments, the first on the 30th June and the final payment on 31st December. Following recent changes, non-Cypriot domiciles are no longer subject to defence contributions on overseas investment income.

Inheritance Tax

UK inheritance tax is a tax on the estate of UK domiciled individuals, and can apply even if you are not a tax resident in the UK. If you or your father were born in the UK it is likely to apply to you, even if you now live permanently in Cyprus. However, if both you and your spouse are UK domiciled then there is no tax on assets passed between you on death, it will only affect your heirs.

Each individual presently can pass on £325,000 to their heirs and the allowance itself can be passed to your spouse, so that a total of £650,000 may be inherited tax free. Any amounts beyond this are taxed at 40% and it is based on ALL of your assets, wherever they may be around the world.

It is very difficult to shed your domicile, but not impossible. The key question is: are you and your spouse committed to living in Cyprus for the rest of your life? If the answer is ‘yes’ then it is worth exploring the possibility of shedding UK domicile.

Ways of reducing or eliminating your inheritance tax liability

Gifting – If you make a gift to your heirs then that gift will not count as part of your estate after seven years.You must not retain any benefit from or control of the gift.

Insurance – Life insurance can be taken out to provide beneficiaries with funds to pay the estate`s liability.This needs to be held in trust so that the proceeds do not fall into the estate.

Trusts – By placing assets in a trust you can retain some control,but you must not benefit from the gift.Care must be taken over the tax treatment of withdrawals by UK resident beneficiaries,as they may be liable to tax on accumulated income and gains within the trust when taking benefits.Care should also be taken to ensure that you do not create an immediate inheritance tax charge;for instance,if more than the nil rate band is added, tax is levied at 20%of the excess.

Discounted gift trusts – These allow you to have an income stream while gifting the majority of the capital and the growth into an inheritance tax efficient vehicle.There is an immediate reduction in the inheritance tax liability,but a poor health condition can affect this.

QNUPS(Overseas pensions) – Similar to the Discounted Gift Trust,this option might appeal to you if you are taking income from your capital,but want to protect any balance from inheritance tax.First and foremost it must be established to provide you with an income,but potentially provides immediate inheritance tax relief.The investment does not need to be from existing pension funds.

Family investment companies – This is a bespoke arrangement that moves your assets inside a private company.Different parties can hold different classes of shares and/or directorships to provide control and reduced inheritance tax liability.

Perils of Probate

The death of a loved one is a very sad and lonely time,but it`s also a time of major upheaval from a financial point of view.Cyprus throws up its own problems and this is a brief guide to some of the issues and to help you plan.

A Will

It is good to have a Will wherever you have assets,so a Cyprus Will is important – but it is only the start of your planning.Think of it as a crash helmet,you want to have one,but hope to never use it.

Probate is the process by which the wishes expressed in your Will are executed.Probate can be very slow and costly.It is best if your Will has a spouse,relative,or close friend as executor,as this keeps them in control of the process.Probate will be dealt with by a Cyprus lawyer,appointed by your executor.

CYPRUS PROPERTY

If property here is jointly owned the property will NOT automatically pass to the remaining spouse.However,if you have title deeds,you can gift property during your lifetime and avoid both the cost and delay of probate.Gifting to your spouse or children during your lifetime does not incur transfer fees,but there can be other factors that need to be considered,such as capital gains tax allowances.

If you do NOT have title deeds it may still be possible to transfer your rights under a sales agreement to spouse or children.

Bank accounts

A bank account held in a single name would need to go through the probate process,but a jointly held account will transfer more directly.There can still be delays with joint accounts so make sure you have enough liquid cash available before advising the bank of the death.

Car

A duty free car must be placed in a bonded warehouse on the death of the owner and is not released until the duty is paid.If you have had the car for ten years the duty is minimal and it is best to pay it.Otherwise,change the ownership into joint names.

Tax

If the deceased is registered for tax in Cyprus then the tax office needs to be notified.Tax in the year of death is on a pro rata basis,so there may be liability.A tax clearance certificate is required before probate can be completed,so if you live here you should register for tax even if you have no liability.

Making a Will

It is important to have a Will wherever you have assets.A Will ensures that your assets go where you intended,rather than being left for the state to decide.Separate Wills for different jurisdictions in which you have assets are advantageous,because a single Will would have to be resealed in the different jurisdictions,increasing delay and cost.

Immovable property is subject to forced heirship rules,unless the European Succession Certificate rules are requested in the Will.This allows the settlor to choose between the probate regime of residence or nationality and can avoid Cyprus’forced heirship requirements.

Your Cyprus Will does not have to be created by a lawyer,but it should be witnessed and the witness verified by a Cerifying Officer.It can be deposited at the Probate Registrar`s office in the court,but this is not compulsory.

Generally,it is not recommended that the lawyer is the executor of the Will as this can fix the rate at which the administration is charged.When the executor is someone other than the lawyer it is possible to agree a rate beforehand that can mean a saving is made.The executor can also dismiss the lawyer,should it be necessary.For couples it is usual that the spouse is the executor.

Ideally,the executor is resident in Cyprus,but if not,you should choose a lawyer and then accompany them to the Probate Registrar.It is then possible to give the lawyer a power of attorney to act on the executor’s behalf.